Section 1 · Stock Fundamentals
How Companies Go Public (IPO)
The moment a private company sells shares to the public for the first time.
Like a private pizza shop opening a franchise.
When a company wants to raise money to grow, it can sell pieces of itself to the public. This is called an IPO — Initial Public Offering. On IPO day, the company sets a price, sells shares, and the stock starts trading on an exchange. Investors who buy in early hope the price rises.
3 things to know
Companies raise billions on IPO day — Airbnb raised $3.5B in its 2020 IPO.
The IPO process typically takes 6–12 months of preparation.
Many IPOs drop below their debut price within the first year.
Dive Deeper
The IPO Process
Months 1–3: Hire Underwriters
The company hires investment banks to manage the IPO. They evaluate the business, conduct due diligence, and structure the offering.
Months 3–6: File the S-1 Prospectus
A detailed public filing with the SEC containing all financials, risks, and business details. Required by law — investors read this before buying.
Month 6: The Roadshow
Executives tour major cities presenting to institutional investors to drum up demand and gauge what price the market will bear.
IPO Day: Price and List
Underwriters set the final price the night before. Shares open for public trading at 9:30 AM on the debut exchange. Chaos and opportunity.
Post-IPO: Lock-up Expiry
Insiders are locked out from selling for 90–180 days. When the lock-up expires, insider selling often creates predictable selling pressure.
Key vocabulary — tap each card
Practice
Buying IPO Shares
✅ Pros
- Potential to catch a major growth story early (Google, Amazon in their early days)
- IPO day momentum can drive sharp short-term gains
- Access to companies at their first public market valuation
❌ Cons
- Most IPOs are priced above fair value — hype premium built in at issuance
- 70% of IPOs trade below their debut price after one year
- No track record as a public company — limited data to analyze
- Lock-up expiry (90–180 days) creates predictable insider selling pressure
- Retail investors rarely get IPO allocation — usually buy at the secondary market top
Did you know?
Google's 2004 IPO used an unusual auction format — anyone could bid, not just big banks. The stock opened at $85. It now trades above $150 post-split.
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